Franking credits can be particularly relevant for retirees, as they can have a significant impact on their income and tax liabilities. Here are a few key points to consider regarding franking credits for retirees:
- Dividend income: Retirees often rely on investment income, including dividends, to support their retirement lifestyle. Dividends received from Australian companies may come with attached franking credits.
- Offset against tax liabilities: Franking credits can be used to offset tax liabilities. If a retiree’s marginal tax rate is lower than the franking rate, the excess franking credits can potentially result in a tax refund, providing an additional source of income.
- Refundable franking credits (cash refunds): Prior to July 1, 2019, retirees who had excess franking credits after offsetting their tax liabilities could receive cash refunds from the Australian Taxation Office. However, changes were introduced, and currently, cash refunds for excess franking credits are generally not available unless certain exemptions apply, such as for individuals receiving government pensions or allowances.
- Impact on investment strategy: The presence of franking credits can be a consideration when constructing an investment portfolio. Some retirees may prioritize investments in companies that pay fully franked dividends, as the franking credits can enhance the overall return on investment.
- Individual circumstances: Each retiree’s situation is unique, and the impact of franking credits can vary depending on factors such as income, tax bracket, and overall financial position. It’s essential for retirees to seek personalized financial advice and consider their specific circumstances when assessing the implications of franking credits.
It is recommended that retirees consult with a financial advisor or tax professional who can provide guidance tailored to their specific retirement goals and help them optimize their investment and tax strategies while considering franking credits.